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Mind the gap – the adverse consequences of rechallenging validity

Like making a claim with Medicare, when you claim costs under a Court scale after succeeding in litigation there is usually a ‘gap’ between what you actually paid in legal costs and what you can recover. Under thePatents Act, if the validity of your patent has been tested in litigation, you may obtain the benefit of a certificate issued by the Court which can allow you to obtain ‘full costs’ in any subsequent litigation.

In AstraZeneca AB v Alphapharm Pty Ltd [2014] FCA 419 (see here), the Federal Court recently made such an order under s19 of the Patents Act.

That provision reads as follows:

In any proceedings in a court in which the validity of a patent, or of a claim, is disputed, the court may certify that the validity of a specified claim was questioned.

If a court issues a certificate, then, in any subsequent proceedings for infringement of the claim concerned, or for the revocation of the patent so far as it relates to that claim, the patentee, or any other person supporting the validity of the claim is, on obtaining a final order or judgment in his or her favour, entitled to full costs, charges and expenses as between solicitor and client, so far as that claim is concerned.

Subsection (2) has effect subject to any direction by the court trying the proceedings.

The facts

In April 2013, AstraZeneca succeeded in patent infringement proceedings against Ranbaxy Laboratories Limited (see here). In that case, Ranbaxy failed in its action to revoke the patents in suit on a number of different grounds (including novelty and inventive step). Middleton J issued s19 certificates for the patents. An appeal was commenced.

In July 2013, AstraZeneca wrote to Alphapharm, referred to the Ranbaxy judgment (and pending appeal) and enclosed the s19 certificates. It demanded undertakings (and other information) as Alpharpharm had caused a number of products to be registered on the Australian Register of Therapeutic Goods and AstraZeneca was concerned that the products would shortly be listed on the Pharmaceutical Benefit Scheme. Frenzied correspondence ensued, which ended with the parties agreeing to an interlocutory injunction.

Alphapharm defended the substantive proceedings on the basis that the relevant claims of the patents were invalid on the grounds pleaded in Ranbaxy and the related appeal. However, the Ranbaxy appeal was settled and this litigation followed suit shortly after.

While the parties had agreed to orders (including an injunction) the key issue for determination by Jessup J was whether AstraZeneca was entitled to its actual costs, rather than its costs assessed on the Court scale.

The decision

Alphapharm argued that the Court should exercise its discretion under s19(3) of the Patents Act and direct that s19(2) has no effect.

As there were no reported Australian cases considering this, Jessup J analysed the Explanatory Memorandum[1] and English authorities (which his Honour said was of little assistance). His Honour concluded that the ordinary rule is that the patentee (who has the benefit of a certificate) is entitled to the higher level of costs and the other party must show a good reason to depart from it.[2]

The reasons relied on by Alphapharm were:

It had not engaged in unnecessary or repetitious disputation of the validity of the patents.

Alphapharm submitted that it was entitled not to immediately yield to the letter of demand as there was a prospect that the Ranbaxy appeal might succeed. Jessup J rejected this argument as Alphapharm had not clearly set out a proposal that would protect AstraZeneca’s position pending determination of that appeal.

A ‘full cost’ award would ‘encourage an unduly aggressive approach in disputes where a s19 certificate had been granted’.

His Honour doubted whether this would be a factor for the Court to consider – but in any event held that AstraZeneca had not acted unduly aggressively in this dispute.

There was no need to commence the litigation, as Alpharpharm had offered appropriate undertakings and AstraZeneca had not provided a ‘cross-undertaking as to damages’.

His Honour held that the undertakings offered did not reflect the subsequent injunction that was ordered by consent. Further, Alphapharm had not articulated the precise terms of these undertakings, post a particular finite period.

Its conduct during the dispute was ‘reasonable and co-operative’ and it had not acted ‘unreasonably’.

Jessup J found that the Alpharpharm did not offer a level of co-operation that would have justified AstraZeneca resolving not to sue. In relation to the ‘unreasonable’ submission, the usual rule in costs is that a party is required to pay the higher level of costs if it has behaved unreasonably. However, his Honour held that this did not apply in relation to s19 certificates.

Alpharpharm was ordered to pay AstraZeneca’s costs in accordance with s19(2) of the Patents Act.

Key take away points

The take away points for both the patentee and the alleged infringer include:

For a patentee, remember to seek the s19 certificates in the final orders of any patent dispute where validity is raised (and fails). Also ensure that the certificates (and judgment) are brought to the attention of any potential infringer in subsequent actions.

For the alleged infringer, the onus is on you to attempt to displace the presumptive effect of s19(2). If you receive such a letter of demand, you should have a long and hard look at whether you can reasonably defend the proceedings (or seek to revoke the claims) with full knowledge that if you fail, you will be liable to pay all of the patentee’s legal fees – without the gap.

Josh Henderson

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